Tuesday, April 30, 2013

The legislation, being worked up by Representative Lamar Smith (R-TX), represents the latest—and bluntest—attack on NSF by congressional Republicans seeking to halt what they believe is frivolous and wasteful research being funded in the social sciences. Last month, Senator Tom Coburn (R-OK) successfully attached language to a 2013 spending bill that prohibits NSF from funding any political science research for the rest of the fiscal year unless its director certifies that it pertains to economic development or national security. Smith's draft bill, called the "High Quality Research Act," would apply similar language to NSF's entire research portfolio across all the disciplines that it supports.

The legislation is wrong headed. It calls for each research project funded by the government to support both economic development and national security. It calls for research to be defended in advance as being ground breaking, while in fact much research is found to have been ground breaking only in retrospect. And it calls for the government to certify that each and every project is to be unique in the government's portfolio -- a finding that would take huge resources to accomplish even were it not useful to have replication of results.

I presume that these people do not recognize the importance of research in providing the basis for future economic growth and do not understand the scientific and technological system of the USA.

Monday, April 29, 2013

Partners in Preservation is holding a contest to choose a historical site for a preservation grant in the Washington Metropolitan Area. The candidates include a church, a synagogue and a cathedral, a store, a theater and a pet cemetery. Some are very old, others not so old. Some are of national importance, others have local supporters. I wonder how you choose which to support (other by Internet voting, which doesn't seem very rational to me).

Over the weekend I saw a discussion on American History TV titled "Interpreting Slavery at Historic Sites". The discussion focused on such sites as Jefferson's Monticello, James Monroe's Ash Lawn-Highland and James Madison's Montpelier. In each case, the building occupied by the former President had been the initial target for preservation, and now attention is being expanded to consider how the slave population that lived at the plantation might be represented at the site, how their lives might be interpreted, and indeed how the president as plantation owner lived at the plantation and how the plantation worked.

It seems to me that the organizations in charge of the sites got it right in that the first priority should be to stabilize the existing major building and remove the later modifications and additions that detract from its functions of showing how a founding father lived. I also agree that showing the homes in the broader perspective makes sense, and I empathize with those who want to see the lives of the plantation slaves commemorated.

Of course, those who take on the responsibility of maintaining a historic site have to make the choices of what to preserve, what to restore, what to interpret and ho to interpret it. There are people interested in how buildings were constructed and others interested in how plantations functioned and the technology that they used; thus some sites can quite legitimately emphasize those aspects of their site work.

I am glad that the plantations and homes of Washington, Jefferson, Madison and Monroe have been preserved.

My own preference would be to see these used to help Americans understand American history and the story of the United States. Of course we have the Washington Monument and the Jefferson Memorial as monuments to these men, monuments that justly celebrate the cultural understanding of their roles as founding fathers.

When we look at the history of the country we should recognize the faults as well as the successes of that history. The concentration of wealth and power (Washington may have been the wealthiest man in America of his time, and our richest president), the exploitation of slave labor, the removal of Indians for the benefit of well connected European immigrants are all part of the history of America.

Note too that our views of history change. The history of 18th and 19th century America will be told differently in a century or two than it is today. Thus if Mount Vernon and Monticello are to continue teaching history in future centuries, they will have to be differently managed and presented in the future than they are today.

Sunday, April 28, 2013

"[The graph] displays the relative wage in finance in the Tri-State Area (New York, New Jersey, and Connecticut), where “Wall Street” employees are likely to generate income, together with the relative wage of finance in the rest of the United States."

After deregulation began in the 1970s, Wall Street pay levels took off. Greed is not good for the rest of us, as the ICT bubble, the housing bubble, the financial crisis and the Great Recession have shown.

By the way, the tax laws also say that the Wall Street guys get to keep more of the money that they get than the rest of us do the money we get!

Saturday, April 27, 2013

Consider the standard diagram of supply and demand one might find in any textbook on economics.

The market clears when no consumer is willing to pay more than some seller is willing to sell the item in question. The consumer surplus is the total of the value of materials purchased by the consumers in excess of the price that they pay for what they bought. The producer surplus is the total of the amounts received by sellers over that which they valued that which they sold.

Now consider what happens when it becomes possible to produce at lower unit costs.

There is a shift in the supply curve, and assuming that there is no shift in the demand curve, the consumer surplus increases. That is, all the people who would previously have purchased the product at the higher price still purchase it, but at a lower price -- the surplus for each presumably increases. In addition, there are new buyers who now also receive a consumer surplus.

The contribution of the market transactions to the GDP are the total quantity sold times the price at which it is sold. Depending on the shape of the demand curve, the improved efficiency of production may increase or decrease the contribution to GDP. In either case, more sales at lower prices increase consumer surplus.

Water Supplies

In poor countries, drawing water is a big problem. People spend a great deal of time going to streams or pumps and carrying heavy loads of water back to their homes for drinking, cooking and washing. Of course, this doesn't enter the calculations of GDP since the people drawing water (usually women or children) are not paid for their labor.

When water is piped to the home, it becomes available at nominal cost. The labor that was formally used to carry water is freed for other work (or school) and there is only a small cost in keeping up the system. Water use goes way up. People are able to use more water. Indeed, the burden of disease goes down. People can not only drink more, use more water in cooking and in washing dishes and themselves, they can use water to wash floors and water plants. Consumer surplus goes way up. However, it is not measured in any national accounts.

Can We Measure Consumer Surplus?

I suspect that the true measure of progress is more related to the accumulation of consumer surplus than to the growth of GDP. How are we to measure that progress?

One measure is probably the extension of life expectancy. The longer we live, the more time we have to enjoy life.

One problem is that we have decreasing hedonic returns to scale. The more food we have, the less we value increasing amounts of food; indeed, if we have more than we can eat we have to spend time and effort disposing of the waste food. We are willing to pay more for better food, and to some degree we are willing to pay more for more nourishing food. People, as their incomes increase, spend more on meat, eggs and dairy products. Unfortunately, we also pay more for foods that are bad for us.

Another problem is that there are many aspects of life that we enjoy but don't pay for. Think of leisure, learning and enjoyment of family life.

Maslow's Needs Hierarchy

Perhaps we could develop a measure of development based on Abraham Maslow's ideas of a hierarchy of needs. Some measures that would allow plotting of how successfully the population of a country was fulfilling each layer of needs might be a much better (multidimensional) measure of development than per capita GDP.

Thursday, April 25, 2013

Homo sapiens is a social species. I suppose we evolved in small bands, in which some members hunted and others gathered fruits, nuts, roots and leaves for food. The older members of the band would share knowledge and skills with the young.

The deep genetic roots of our species show up in many ways. In sports, teams of even quite young players divide responsibilities with each player learning the special skills of his/her role in the game; only the youngest soccer players all try to do the same thing at the same time.

As civilization became more complex, knowledge and skill become more socially distributed. It may take a village to raise a child, but it takes a Silicon Valley to invent the Information Revolution, and a nation to run a modern economy. I believe that information is embodied in institutions and cultures as well as in genetics and the changes in the nervous system and muscles resultant from individual learning.

A modern organization has a structure and a set of procedures in which people function. The structure and procedures are, if you wish, software. In a large organization there is no complete documentation of the organization and procedures, indeed no one can fully explain them all. Yet the performance of the organization as a whole depends on the structure and procedures and not simply on the sum of the individual knowledge and skills of its members.

Similarly, information is embodied in other institutions. Consider markets. Even the weekly market in a small village depends on a structure -- what is sold where and when, and mechanisms to insure the trustworthiness of buyers and sellers. Sellers must be able to trust that payment is not made in counterfeit or debased money; buyers that weights and measures are fair and the products that they buy are not dangerous nor debased (such as watered milk). Even such a market will have people who mediate disputes between buyers and sellers. At the other extreme, the New York stock market is highly automated with complex organisations embodying a huge amount of information.

We also outsource knowledge and skill as individuals. Ever since the invention of books, people have depended on information stored in books rather than in their memories. It is far easier to recall where information is stored in a library than to memorize the content of the library; indeed, libraries incorporate information in the way they organize their books and in the catalog of the books; the librarian who catalogs books and helps the library user is another example of the social distribution of knowledge. In a professional library, the user may have the skill to utilize the knowledge in the books, but the librarian the skill to help find the right books quickly and efficiently (without the professional expertise to utilize the knowledge in the books).

An architect may use a powerful computer with powerful computer aided design software in creating the design for a building. It is very unlikely that the architect would have the skill to design the computer nor program the software. It is much less likely that the architect could manufacture the semiconductor chips that are integral to the computer. Yet the architects thinking is made quicker and deeper by the intelligence amplification of his computer and its software.

However, this is only one of many, many examples of the amplification of performance by information embodied in tools. The carpenter building the house designed by the architect is also using power tools that he could not himself design, themselves composed of materials he could not manufacture. Indeed, even a good carpenter works better with a well balanced hammer.

Schooling should take into account the social distribution of cognition. It should take into account that our application of knowledge and skill is mediated by the tools we use, the environment in which we work. To grossly oversimplify, schools should prepare students to function in society.

The job of schools is complicated by the fact that the graduates are going to be expected to function at high levels for decades, and that the society in which they are to function will change radically during those decades. Perhaps the most important functions of school will be to help students to love learning, to prepare them for lifelong learning. Indeed, schools should help students learn to integrate themselves into learning groups and learning communities; they will need to learn with other all their lives if they are to learn effectively and efficiently.

Wednesday, April 24, 2013

The Economist has an article documenting that H7N9 flu has infected at least 82 people and killed 17 of them in China; a new coronavirus (the family of viruses that SARS belongs to) is circulating in the Middle East. It has killed 11 people since it was noticed in September. Either might evolve into a global pandemic.

These cases illustrate both how far the world has come, and how far it still has to travel, on the journey towards building a system that can identify new infectious diseases and snuff them out before they become threatening. As the case of AIDS shows, a novel pathogen that spreads around the world unnoticed by the medical authorities can wreak havoc. More recently, cheap air travel has proved a boon to pathogens keen for a global tour. Fortunately the world has learned from the cases of SARS, H5N1 bird flu (in 2005) and H1N1 swine flu (in 2009). Systems are being put in place to spot potentially pandemic diseases and stop them quickly. These systems, though, are still piecemeal. At present it looks unlikely that either H7N9 or the new coronavirus will become pandemic. But if they do—or if some other powerful new virus or bacterium emerges—it is unclear whether the world will be ready.

The initiation of a focus of polio in Nigeria was in part due to the divisions within that country and the inability of the Nigerian central government to effectively carry out its own eradication program in its northern states. More generally, the threat of a disease emerging to trigger a global pandemic is most severe in failed states, states in conflict, states involved in civil wars, and similar disrupted states. Unfortunately there have been many states raising such threats in recent decades, and there is every reason to believe that there will be others in the future.

The World Health Organization is the most important international organization to deal with the threats of global spread of infectious diseases. Other UN organizations are also involved -- FAO for zoonoses, WIPO for intellectual property rights for vaccines and medicines, UNIDO for the development of manufacturing capabilities for vaccines and medicines, ITU for the communications infrastructure needed to spread information on epidemics, the International Civil Aviation Organization, etc.

The United States is currently withholding funding from UNESCO due to a provision of law which states:

"The United States shall not make any voluntary or assessed contribution - (1) to any affiliated organization of the United Nations which grants full membership as a state to any organization or group that does not have the internationally recognized attributes of statehood, or (2) to the United Nations, if the United Nations grants full membership as a state in the United Nations to any organization or group that does not have the internationally recognized attributes of statehood, during any period in which such membership is effective."

This provision would apply to all of the UN agencies mentioned above. The nominal impact would be either to keep each and every agency from recognizing a state under a wide variety of conditions, or would force the United States to withhold funding from any agency that recognized the state. Note too, that were WHO, FAO or another agency to refuse to recognize a group holding power over a region as a member state, that group might also prevent the agency from functioning in the area it controls. Thus the impact of the provision of law might be very contrary to U.S. national interests and indeed to world health.

Of course, the Congress could change the legislation were such an situation actually to occur, but such changes can take time to negotiate. In the case of an infectious disease with the potential of becoming a global pandemic, time is of the essence. The obvious solution is for the Congress now to change the regulation adding authority for the president to waive the provision if doing so would be in the national interest. He could then act quickly if the need arose.

Obviously there are many other possible situations where speed in needed, such as the spread of a disease of livestock or crops, problems in civil aviation, conflict over water resources or ocean routes, or the control of piracy, human trafficking or drug trafficking. In the face of such uncertainty, giving the administration some flexibility seems prudent.

There were over 16 million deaths and 20 million wounded in World War I according to Wikipedia; estimates range from 50 million to 70 million killed in World War II.

In the Holocaust, Nazi Germany killed some 6 million of the 9 million Jews who had lived in Europe at the beginning of World War II; estimates of the death toll of Romanies targeted by Nazi Germany range from 220,000 to 1,500,000. "Recent estimates based on figures obtained since the fall of the Soviet Union indicates some ten to eleven million civilians and prisoners of war were intentionally murdered by the Nazi regime." Nazi Germany also conducted mass murder of other groups such as the mentally retarded or ill, those with birth defects and homosexuals.

The United States had failed to join the League of Nations after World War I and the League had failed to prevent World War II. The economy of Germany had been decimated by the reparations after World War I, leading directly to political crisis, the rise of Hitler and to the War. The Depression of the 1930s had darkened the economies of the Allies, and the Roosevelt administrations was still seeking its solution when World War II broke out in Europe. Clearly Roosevelt, Truman and their cabinet officers were fully committed to finding a solution to the peace that would prevent Germany from starting World War III while containing Communist expansion.

Beschloss' book focuses on President Franklin Delano Roosevelt, Secretary of the Treasury Morganthau, Secretary of State Hull and Secretary of War Stimson. The author paints a picture of dysfunction; the president refusing to share minutes of his meetings with Stalin and Churchill with his cabinet members, and the cabinet members poaching on each others responsibilities and back biting as they sought the favor of FDR. Yet the Roosevelt administration successfully led the nation from its isolationist position in the 1930s to support for Britain and the Soviet Union in the early days of the war, to full participation leading to victory for the allies. The administration, although not emphasized by Beschloss, mobilized the military, financed the deficit incurred during mobilization and war, and produced huge amounts of armaments for U.S. and allied troops.

The book spends fewer pages on the early days of the Truman administration. Truman was thrust into office at the death of FDR without having been briefed on the key agreements among the allies, nor about the development of the atom bomb. He is given credit for honoring the agreements made by his predecessor, for the flexibility to change policies in view of negative results, and of more effective management of his cabinet than FDR achieved. Beschloss suggests that Truman became much more assertive in negotiations with Stalin with the news that the trial of the first atom bomb had been more successful than expected.

The book tells of a huge success. Germany has since the end of World War II been democratic and peaceful. During the Cold War, expansion of global Communism was contained and the Communist governments eventually fell; the world is more democratic and capitalistic market economies are found almost everywhere. Much of the credit must go to FDR and Truman and the policies that their administrations pursued -- a point stressed by Beschloss. He might have given more credit to the United Nations and the efforts of other governments.

We must remember that not only were the Nazis rabid racists and anti-Semites, but racism and antisemitism were rampant in the United States. Henry Morganthau, portrayed as the most secular of Jews, is also portrayed as working hard to get the United States to intervene to save European Jews from the Holocaust. Surely the failure to do so is one of the worst blemishes on American foreign policy in history. Yet Roosevelt was clearly right in insisting that World War II was more deadly than the attempt to exterminate the Jews, even that the mass murders being committed by the Nazi regime exceeded even the murders of Jews in magnitude. Winning the war, ending Nazi mass murder, and avoiding (a nuclear) World War III were by any reckoning more important than ending the Holocaust. Of course the Holocaust should have been ended, and of course the casual antisemitism of the Allied leadership was despicable, but the priorities on even worse problems was were not wrong.

Michael Beschloss clearly mastered a great deal of information from U.S., British and Soviet sources in preparing this book. He has chosen to write a relatively short book focusing on a small part of the problems facing the American presidents during and immediately after World War II -- mainly the summit meetings with the British Prime Minister and Stalin (and the meetings of their foreign ministers). By doing so, he has created an immensely readable book, yet one that changed my understanding of World War II in fundamental ways.

We understand an event in terms of the linkages we establish between that event and other events.

The media have been encouraging Americans to understand the Boston Marathon bombings in their relationship to the conflict between Russians and Chechens or the role of Chechen fighters in Afghanistan and Syria.

What if we instead understand the Boston Marathon bombings in their relationship to the shootings at Sandy Hook, Columbine, Virginia Tech, Denver, etc. or Timothy McVeigh's Oklahoma City bombing?

Maybe Pogo was right!

Further Thoughts

I don't usually return to a post to add to it, but I will do so here. I heard political conservatives going back, seeming to liken the Boston Marathon bombers to Sacco and Vanzetti, the immigrants who were convicted of murder in a famous trial in the 1920s. The Tsarnaev brothers will be used to lobby against immigration reform. It will be (strangely) used to argue against Hispanic immigration.

I was first annoyed by the "talking heads" who fill airspace with fluff and misinformation since no one knows why those young men did what they did. The false analogies, and most must be false since there are so many that have been advanced, lead to bad thinking and bad responses. (Think about President Bush leading us to war against Iraq, no doubt due to a bad analogy between 9/11 and the Iraqi invasion of Kuwait.)

My niece, who happens to be a defense lawyer, pointed out that Dzhokhar Tsarnaev's mother is in real pain and deserves honest treatment of her son. So too, the mothers of the victims of the bombing deserve honest treatment for their children.

I remember explaining linear programming to a very good PhD statistician. He summarized the explanation in a single sentence because he had a very complex mathematical machinery at hand to utilize for that understanding.

I also remember explaining linear programming to a class of MBA students who had very little background in mathematics and certainly none in systems of linear equations. It took me days to figure out how to make an explanation that those students could understand. I learned a lot in the process.

Sunday, April 21, 2013

Unemployment rates by educational attainment, 2007 and 2012

What is full employment? I like the idea that there is a "structural unemployment". I have been unemployed once on returning from an overseas job when the government job I had been promised fell through. Another time after I left the government it took some time to build a consulting career. If the economy is healthy and people feel that they can get new jobs, they will sometimes leave their current jobs and go on the job market. This is structural unemployment.

I suspect that the 1.7 percent unemployment among people with advanced degrees in 2007 was indicative of a situation in which those folk were being hired away from their existing jobs, making the transition without any pause. I have done that in the past, leaving one job on a Friday afternoon and starting the next on the following Monday morning. One might think of that as a situation of "excess demand" in which there are jobs searching for people to fill them.

In 2007, the 5.4 percent unemployment among people with only a high school diploma might be seen as full employment. The youngest, just out of high school may have been unemployed for a while trying to find a real job (supported by their parents during the search); older workers might spend several months after leaving one job before finding another.

The 2012 employment levels are clearly more than structural unemployment. The economy is not able to employ all of the people that it might. We are losing production of goods and services we will never recover.

Even now, however, the job market is OK for college graduates and good for people with advanced degrees.

The job market is always tough for the folk who haven't got a high school diploma, but is worse now. One out of six is out of work!

(W)hat the Phillips curve with expected inflation implied was “clockwise spirals” in unemployment-inflation space. Suppose you came into a recession with, say, 10 percent inflation. This inflation rate would fall in the face of high unemployment — and expected inflation would eventually fall too, so that when unemployment fell again inflation would remain lower than it was pre-recession (until the next boom).

Both the slump of the mid-1970s and the slump of the early 80s fitted this pattern, but the recent slump has not.

The great recession is appears to be a "balance sheet recession" where banks and firms have seen a large decline in their balance sheets due to falling asset prices and bad loans. It is different from those in the 70s and 80s in that the U.S. and European central banks have been pumping huge amounts of money into the economy. The infusions of cash into the economy have kept inflation relatively constant as unemployment increased and started to increase again.

One of the members of my book club holds that the bad loans made during the housing bubble are largely still on the books of existing firms and there will have to be foreclosures and fire sales of the collateral. He also suggests that we don't know how the central banks will unwind their monetary policies nor how the national governments will unwind their fiscal policies that were put in place to deal with unemployment and lack of economic growth. We may be heading not only into uncharted waters, but dangerous ones.

People thinking about buying guns for home defense should have some knowledge on which to bast their decision, and should do some analysis before making their decision on what weapon to buy if they do buy a weapon.

I got into a brief discussion about weapons for home defense. Let me say first that I was something of a gun nut as a young man, I owned several guns, spent a lot of time target shooting, and hunted. However, I don't think it is a good idea for most people to keep a gun in their homes for home defense.

I did some reading on the Internet. There is a lot of information available, and some of it seems useful. Surely it seems worthwhile to do a little research before deciding whether to have a gun in the house for home protection. The articles I read suggested that "experts" are very divided in their responses to the question of what kind of weapon to own for such a purpose.

Perhaps the first question you should ask yourself is where to put your effort. Would you be better off planning on ways to avoid having to defend your home rather than planning how to defend your home? It is almost certainly better to call the police and let them defend your home rather than do it yourself, if that is feasible. Do you know how to keep yourself safe were someone to try to invade your home?

The couple I was chatting with on the topic were both mature army veterans with no children at home. They of course had had training in weapons safety. The couple live in what seems to me a very safe area, and see the shotgun in the home as useful also for varmint hunting. They seem to be capable of making a rational decision. Are you?

Surely someone contemplating having weapons for home defense should have training on gun safety. Fortunately it is readily available -- one of the public services of the NRA. You probably have friends who own guns and know how to use them -- people who would be pleased to share their knowledge and perhaps even to take you out and let you use their guns. You might find you enjoy practicing with a rifle, a shotgun or a pistol. That would be important for you to understand. You might enjoy hunting, or you might hate killing animals. That too would be important for you to understand.

Most of the short pieces I read seemed to me to start too late. For example, they did not deal with the question of the risk of having a weapon in the house versus the risk involved in not having a weapon for home defense when one would be useful. Check out this article. I would suspect that hand guns, rifles and shotguns have different risks of accidents or misuse in the home and different values in home defense. People in different neighborhoods have very different risks of home invasion. The best choice would seem to be very different for different families.

Incidentally, if you ever suspect someone you don't know is in your home or trying to get in your home, my guess is that the best solution is to call the police and let them take care of the situation. If you come home and think someone is inside, don't go in. If you think someone is trying to get in by a window or door, go out by the furthest door.

I recall a neighbor years ago who heard someone in his back yard who had climbed over the fence in the middle of the night. My neighbor had a pistol for home defense. He got it and went out into the yard to confront the intruder. The next day my neighbor described to me confronting the guy across a small goldfish pond before the man turned around and disappeared over the wall. It was only in the light of the next morning that my neighbor found a pistol on the ground where the intruder had apparently dropped it. My neighbor might well have been killed had the intruder decided to shoot at him at a distance of 10 feet. Are you better prepared for a gun fight in the night?

Some articles dealt with the risk when shooting of the bullet going past the intended target and endangering others. In our dense urban areas with thin walled houses, that seems a significant question to me. Some weapons and some ammunition are much less likely to be dangerous to your neighbors.

The articles didn't seem to take into account who would be using a weapon for home defense. The 6 foot, 200 pound man, who is a military veteran, who hunts and who enjoys target shooting would seem to want a different weapon than a 5 foot, 98 pound woman who is afraid of guns and would not have time to practice with them.

Would you want to kill someone who was simply trying to steal you television set? If you simply wanted to scare someone away from your house, a big bang might be just as effective and much safer than a bullet. Maybe a starter pistol with blanks might be a good alternative or a good part of household weaponry. Of course you don't want to confront an armed intruder with a starter pistol!

Some of the articles seem to assume that the right weapon would have lots of fire power -- capable of rapid fire, with lots of stopping power. I kind of wonder whether a small gauge shotgun with bird shot or a small caliber pistol firing low velocity, small caliber bullets might offer a better balance of potential benefit and risk. One source suggested that mace might be still a better solution.

How about the economics involved? How much can you afford to spend? Would you use a pistol, rifle of shotgun for other purposes than home protection, such as hunting or target shooting -- home protection is not the first choice for most gun owners. What would be the benefits of the total package of benefits (recreation, food on the table, protection) versus the cost and versus the risk?

This blog focuses on the benefits of knowledge and analytic decision making. Those benefits also apply in decisions on whether or not to own a weapon, and what kind of weapon to own if one so chose.

Friday, April 19, 2013

Thursday, April 18, 2013

Expanded background checks prior to gun sales has been perhaps the least controversial element of proposed legislation to reduce gun violence in the United States. As the graph above shows, the vote in the Senate was mostly along party lines, with a few defections from each party.

You may think that your responsibility is to the candidates in your state, but all the senators vote on gun laws that affect you.

Save this post. Donate money to the Republican senators running in 2014 who supported expanded background checks. Donate money to the opponents of the Democratic senators who opposed expanded background checks, especially in the primaries.

Bonds when issued promise a steady stream of returns for a period of years at the end of which the principle is returned to the owner. The value of the bond is determined by the present value of those payments -- that is, summing all future payments, each discounted according to expected inflation. The higher the inflation rate, the higher the interest rate must be on the bond to get people to buy.

Unfortunately, not all bond sellers are able to make the scheduled set of payments. The higher the risk of noncompliance, the lower the price that buyers are willing to pay (or to put it differently, the higher the interest rate on the bonds that the buyers demand).

Stock prices are similarly determined. The buyer of a company's stock (in theory) calculates the present value of the stream of dividends and of the price of the stock when sold.The buyer also estimates the risk involved. The purchase price of the stock must be acceptable in terms of both the present value of future income from the stock and the risk involved.

Investors can choose between stocks and bonds, so each affects the price of the other. If interest rates are low (and thus the prices of bonds are high), the prices of stocks will also be high.

Taxes also count. People should be more interested in their after tax income and net worth than in the pre-tax values. If taxes on dividends, interest and long term profits are low, they the prices of stocks and bonds should be higher.

Of course there are bubbles and crashes when prices depart significantly from the rational values as described above. Buyers suffer from "irrational exuberance" during the expansion of a bubble and irrational pessimism during the latter parts of a crash,

Several weeks ago I posted including a graph of the historical relation between the total value of stocks on the U.S. stock market and the Gross Domestic Product (GDP). That ratio went very high in the e-commerce bubble in the late 1990s, again in the housing bubble of the mid 2000s, and is again high. Interpretation of the trends is complicated by the fact that many companies are multinational, drawing their profits from production and sales in other countries.

However, a portion of the GDP of the country goes into corporate profits and thus into corporate dividends and the increase in capital of the corporations -- the bigger the GDP the greater might be the corporate profits and thus the greater the total value of corporate stocks.

As the figure shows, there is a rough agreement between the total market value of shares on the stock market and the GDP. It has been suggested that the value of stocks oscillates around the value of GDP.

As the graph above shows, corporate profits after tax oscillated around six percent of GDP from the mid 1950s to 1980.From a low in the mid 1980s they have risen to a high in recent years. That is one explanation for the high value of stocks now.

Tuesday, April 16, 2013

The United States has two international land borders: our northern border with Canada and our southern border with Mexico. The U.S.-Canada border is over 5,500 miles long and it is the longest, least militarized international border in the world. The U.S.-Mexico border is nearly 2,000 miles long and crossed more frequently than any other international border. Our northern border is sparsely protected and gives potential illegal aliens easy entry into the United States. The U.S.-Mexico border, although better protected, allows foreign nationals to easily enter the United States illegally.

According to NOAA the Atlantic coastline is 2069 miles long, the Pacific coastline including Alaska is 7,623 miles long, the Arctic coastline of Alaska is 1,060 miles long, and the Gulf Coast coastline is 1631 miles long. Of course there is legitimate shipping arriving at the many U.S. ports, but the coastlines are also possible entry points for small crafts from Canada, Mexico and the Caribbean nations. That does not count coastlines of Islands belonging to the United States.

The federal government expected more than 66 million international travelers would visit the United States in 2012. That number includes tourists, and international tourism is big business contributing significantly to reduce the U.S. balance of payments problem. But there are also many people who visit the United States each year on business. People who arrive legitimately, often with valid visas, sometimes overstay their permits and become illegal immigrants.

Benchmarks for Border Security

Republicans, in the discussions of reform of immigration law, are calling for improved measures of border security with defined benchmarks for the performance of the Department of Homeland Security. It will not be simple to define appropriate indicators nor to make the measurements. It may not be a good idea to publish the information. Indeed, given the rate of change of technology, it may be important to plan for continuing improvement of measures to monitor border transgressions.

Monitoring thousands of miles of land border and thousands of miles of coastline is obviously a huge task. So too is monitoring tens of millions of visitors. Both tasks are complicated by the fact that the people the government is most interested in monitoring may be taking evasive measures to evade being seen and being followed. Recall that tunnels have been dug under the border, and that there are professional smugglers who specialize in bringing in illegal aliens at night and avoiding surveillance.

Telling those seeking illegal entry exactly how their movements will be monitored obviously may help them to evade the monitoring, and so is a bad idea.

There has been a significant development of drone based remote sensing and computer processing to monitor movements on the ground, largely done to support the military efforts in Iraq and Afghanistan as well as other insurgencies. Similarly, intelligence agencies have developed advanced technologies to capture and analyze electronic signals, including Internet and telephone messaging. I can only suppose that the details of this technology are held as state secrets.

One can imagine lighter than air craft that might be stationed permanently over borders with complex detection technology. So too, one could imagine radio frequency identification chips being added to luggage or clothing to monitor visitor location, not to mention monitoring of cell phone locations. Indeed, I could imagine hawks and dogs being trained to patrol the borders, eagles and dolphins to patrol the coasts identifying to border patrol possible illegal crossing. One would not want to preclude future technology improvement by freezing technology in legislation that would soon be outdated.

I suspect that some of the focus on measures and benchmarks is not only misguided, but intended to militate against getting a good law. The ideal is the enemy of the good!

Monday, April 15, 2013

Roughly one out of 135 Americans is in jail. With about one 20th of the world's population, the United States holds on quarter of the world's population of prisoners. Imprisonment of America's 2.3 million prisoners, costing $24,000 per inmate per year, and $5.1 billion in new prison construction, consumes $60.3 billion in budget expenditures.

Midyear 2009 incarceration rates for inmates held in custody in prisons or jails differed by race and gender. Black males, with an incarceration rate of 4,749 inmates per 100,000 U.S. residents, were incarcerated at a rate more than six times higher than white males (708 inmates per 100,000 U.S. residents) and 2.6 times higher than Hispanic males (1,822 inmates per 100,000 U.S. residents). Black females (with an incarceration rate of 333 per 100,000) were more than two times as likely as Hispanic females (142 per 100,000) and over 3.6 times more likely than white females (91 per 100,000) to have been in prison or jail on June 30, 2009.
Source: Bureau of Justice Statistics

Within three years of being released, 67% of ex-prisoners re-offend and 52% are re-incarcerated, according to a study published in 1994.[73] The rate of recidivism is so high in the United States that most inmates who enter the system are likely to reenter within a year of their release.

So What Do the Figures Mean?

My guess is that blacks are so much more likely to wind up in jail than are Hispanics who in turn are more likely to be jailed than whites is due to the pervasive prejudice in U.S. society. Blacks and Hispanics are more likely to be in the underclass with less economic opportunity than whites. They are more likely to be surrounded by and involved in drug culture. Their families are more likely to be stressed. Those conditions probably make them more likely to commit crimes. They are more likely to be targeted by police. They are more likely to be convicted if arrested. Once they have prison records, they are very likely to return to prison.

Unfortunately there are economic realities that reinforce the problem. Police forces have grown as has the number of prisons and prison guards. Towns are now dependent on the prisons that they house. There is an industry providing supplies to the police and prisons that would lobby for its industrial health and survival. A whole generation has been ruined by their prison experience, and their families have suffered as well.

Our prison population was not always so large. Richard Nixon discovered that he could gain votes by declaring a "war on drugs" and Ronald Reagan mined American fear for further political gains. Politicians have continued to enact Draconian laws against drug use, drug dealing, and crime. The "three strikes and your out" legislation has been especially dysfunctional. And the voters bear the ultimate responsibility for letting them get away with it.

We could start a reform by recognizing drug dependency as a medical problem. We could shorten sentences and help former prisoners to reenter society on release. We could revise and reduce sentences and incarcerate people in ways that would reduce recidivism. And we could make racial and ethnic prejudice less pervasive!

Sunday, April 14, 2013

Mark Zuckerberg, the boss of Facebook, and a bunch of other Silicon Valley types are planning to launch a well-funded political-advocacy group to lobby for more visas for skilled immigrants. Applications for this year’s quota of 65,000 “H-1B” visas for such workers began on April 1st. In less than a week they were oversubscribed........

Some 40% of Fortune 500 firms were founded by immigrants or their children, according to the Partnership for a New American Economy, a pressure group. So were the firms behind seven of the ten most valuable brands in the world. Although the foreign-born are only an eighth of America’s population, a quarter of high-tech start-ups have an immigrant founder (see left-hand chart).

Thanks to Mr. Zuckerberg. I join in his concern that not only do we need reform of our immigration laws in the United States, that reform ought to bring more people to our shores that will create businesses and jobs. I suspect that bringing techies who will fill jobs that companies can not fill from the existing U.S. workforce will also create jobs for others who are here.

Saturday, April 13, 2013

Richard Heeks has created a Revolution 2.0 Index (see chart below). It is each country’s Outrage score minus its e-Control score. A low overall score might derive from a country being relatively democratic, creating limited head of steam for regime change (e.g. India) or because cyberspace is so controlled (e.g. Cuba, China). Conversely, high scores typically arise in countries where political freedoms are compromised but Internet freedoms are not (yet).

Numbers released today by the Census Bureau paint a fresh and complex picture of poverty in America. For the first time, the figures count the impact of benefits like food stamps, tax credits and housing assistance. And for the first time, the data reflect not just income but spending, factoring in medical expenses and child-care costs.

Under the new measure, the number of children in poverty is lower than under the traditional poverty calculations. The number of seniors in poverty is higher.

There is obviously too much poverty in the United States. I personally believe that it is potentially if not politically possible to introduce pro poor policies that would reduce poverty in the United States to much lower levels. The Congress has chosen instead to promote pro plutocrat policies that make the rich even richer.

We know that older Americans vote and follow politics. Are you surprised that they are less poor than children, even taking into account the public assistance that is available through programs such as food stamps for families with poor children.

Recently we were contacted by Horacio Gutierrez, an independent researcher who contributes to Slate’s tally and wanted to draw our attention to one recent murder in particular – that of Cathy Byus, 34, who was shot and killed by her husband in Shawnee, Okla., last week. Three years earlier, Gutierrez told us, Cathy’s parents were shot to death by three escaped prisoners who came across them while they were camping. She was their only child.Joe Nocera in The New York Times

This morning my news station woke me with a reporter complaining about all the coverage we have been getting lately of individuals killed by guns. She was holding the position that the details of children accidentally killing other children would leave the listener with an incorrect perception of gun violence in the United States. Thus, few would realize that the largest number of gun deaths in the United States result from suicides.

Of course, part of the problem is that the gun lobby has influenced the Congress to bar the government from collecting and reporting statistics on gun violence. Indeed, the Congress keeps government health agencies from doing research on gun violence. So there are few accurate statistics on guns and gun violence available to the media.

I note however that PBS Newshour has been showing the pictures of the service men killed in Iraq and Afghanistan for years. No one seems to have complained that viewers of PBS Newshour are likely to believe that more Americans are being killed by insurgents and terrorists than by other Americans.

Wikipedia reports 4,977 American military killed in combat in the Iraq and Afghanistan wars and an additional 1,303 killed in non-combat events.

I too regret the lack of good statistics on guns and gun related violence in the United States I also regret lack of research on why people use guns to commit violent acts against themselves and others, and the lack of research on the effectiveness of alternative approaches to promote gun safety.

However, and this is the point of this post, I recognize that statistics and scientific research can only go so far to promote public understanding of the problem. We think with our brains and our emotions. If we want a full intellectual and emotional understanding of the problem with guns in our society, I think we have to combine statistics and research reports with stories of real people who suffer from gun violence and gun accidents (as well as real people who benefit from and enjoy gun ownership).

I am old enough to remember the difference in the public reaction to the Vietnam war as compared with Korea and World War II. I think it was due to the photos coming back from Vietnam and the television coverage. "Seeing is believing." "A picture is worth 1000 words." A video is worth a lot of dry, tabulated statistics. The Sandy Hook massacre got to people emotionally and helped us to understand gun violence, and that is a silver lining to a very dark cloud.

There are more than 129,817 federally licensed firearms dealers in the United States, according to the latest Bureau of Alcohol, Tobacco, Firearms and Explosives numbers (as of Aug. 1). Of those, 51,438 are retail gun stores, 7,356 are pawn shops and 61,562 are collectors, with the balance of the licenses belonging mostly to manufacturers and importers of firearms and destructive devices.........Grocery Stores in the U.S. (2011) 36,569 (source: Food Marketing Institute)
"Guns in America, a Statistical Look", ABC News

Friday, April 12, 2013

I recently posted on the continuing growth in U.S. manufacturing GDP which is increasingly accompanied by a decrease in manufacturing jobs and the switch in employment from manufacturing to services.

Tonight I saw an episode of Need to Know on how Ohio workers are dealing with the loss of manufacturing jobs and the loss of a middle class standard of living for the manufacturing factory workers who are able to keep working.

The program pointed out that U.S. manufacturing companies have been doing quite well for several years. Interest rates are essentially negative (lower than the rate of inflation), so that companies can borrow and invest in automation. The United States has also developed new technology (fracking) to produce natural gas and has a good pipeline infrastructure to distribute the gas, resulting in much lower energy costs for factories than are available in other countries. (It is costly to export U.S. natural gas to China, so we continue to enjoy the low resource cost.) U.S. factory wages and benefits have been deteriorating, but they remain much higher than those in developing nations.

The United States continues to have a huge market for manufactured goods, and of course the transportation costs of getting U.S. manufactured products to U.S. consumers are lower than those of foreign countries selling into the U.S. market.

A few thousand U.S. companies own 80 percent of manufacturing capacity in this country. All are multinational, and they have learned to shield profits from taxation. For example, they transfer ownership of intellectual property to countries with low tax rates on industry, and then charge U,S, factories for use of the patents, transferring funds that would be U.S. profits taxed at high rates to the foreign subsidiaries. Many hundreds of millions of dollars are being held in these foreign subsidiaries.

U.S. companies are therefore competing for U.S. market share in part by using cheap money to automate and replace labor, by using cheap energy, and by paying low taxes. They are also benefiting from the increase in labor costs in China as that country becomes more affluent (and begins to see increase in worker income as necessary to create domestic demand, which in turn is needed to maintain China's high rate of economic growth).

Check out this article on the Obama plan to continue growth in U.S. manufacturing. And this article on the reduction of international financial flows (which suggests to me that there is less credit available in developing nations for them to invest in capital improvements for their factories than there was before the 2008 financial crisis.)

Wade Davis provides a stirring plea to preserve and protect the cultures of the world with only a few members each. It is worth watching. Still I have doubts.

"Culture" in Davis's sense can be defined as the way people live in the world -- their language, their knowledge, their institutions, etc.

I recall visiting a village of indigenous people in Colombia and being impressed by their traditional costumes. Then I discovered that they had adopted that costume from another tribe living some distance to their south, and had done so relatively recently. My point is that cultures change, even the so called "traditional" cultures.

I live in the Anglophone portion of Western culture. I am very glad of some of the radical changes that have occurred in my culture, such as the Renaissance, the Enlightenment, the Industrial Revolution and the Information Revolution. So I can easily imagine changes in the kinds of cultures Wade Davis is concerned with that would be both dramatic and greatly appreciated by the recipients of the changed culture.

I suspect that some of the opposition to the impact of foreign cultures is from people feeling the impact in their pocketbooks. Film makers and magazine publishers don't like to see serious competition in their markets from foreign language products; the ears of music lovers may be insulted by the intrusions of foreign popular music into their radio stations. I also recognize that serious people may have very grave and proper concern with cultural intrusions of inferior foreign products.

One way the languages can be kept alive is for national policies that promote multi-language proficiency. In much of the world it is not at all surprising for many if not most people to speak several languages. My grandfather spoke Irish, my father had some Irish, and Ireland requires students to study Irish in the schools although almost all the Irish are fully fluent in English and most use English as their first language. Still, there are enough people who work at keeping the language alive that it seems likely to survive (even though there was a long effort by the English rulers of Ireland to exterminate the Irish language).

I also suppose that the most common way for cultures to change is by picking up ideas, words, technologies and other elements from other cultures. If the people within a culture choose to do so, that doesn't bother me too much. Indeed, I feel fairly comfortable suggesting that people in other cultures abandon warlike practices, violence, and corruption. I feel comfortable suggesting that people in other cultures adopt practices that are likely to make their children live longer, healthier lives. And frankly if I had to choose between the survival of a minority language and survival of children, the children would win out every time. Fortunately I don't think that choice is ever needed, and fortunately other people are making the choice of what to keep and what to reject in their own cultures.

Wednesday, April 10, 2013

2 April 2013 – The United Nations General Assembly has approved a global arms trade treaty that failed to achieve unanimous support last week but garnered the support of a majority of Member States when put to a vote today.

The resolution containing the text of the treaty, which regulates the international trade in conventional arms, received 154 votes in favour. Three Member States – Democratic People’s Republic of Korea (DPRK), Iran and Syria – voted against the decision, while 23 countries abstained.......

“The Arms Trade Treaty asks States to explicitly consider the risk that an arms transfer could facilitate serious acts of violence against women and children before allowing it to proceed,” Susan Bissell, UNICEF’s Chief of Child Protection, noted in a news release. “This is critical given that weapons are now one of the leading causes of death of children and adolescents in many countries, including many that are not experiencing war,” she added.

The UN Special Adviser on the Prevention of Genocide, Adama Dieng, welcomed the inclusion in the treaty of a prohibition on the transfer of arms which would be used in the commission of genocide, crimes against humanity and certain war crimes and called on States to act quickly to apply this prohibition, pending its entry into force.

The new global arms trade treaty was overwhelmingly approved by the United Nations, with U.S. backing, but it was clear on Wednesday it faces a tough fight for ratification by U.S. senators who contend it could affect Americans' gun rights.......

Washington was one of the 'yes' votes, but to go into effect for the United States it must win at least 67 votes - a two-thirds majority - in the 100-member Senate. Last month, the Senate supported a measure calling for the treaty's rejection even before U.N. negotiations on its text were completed.

Tuesday, April 09, 2013

The United States and United Kingdom are experimenting with social impact bonds. This blog post describes the concept of these bonds and suggests that they might be used to fund health education and preventive medicine programs managed by NGOs. If the concept worked, it might be a win-win-win proposition benefiting the public and investors with little risk to the public purse.

In the United Kingdom and the United States experiments are under way with social impact bonds. The bonds are issued by a financial firm and purchased by investors. The funds raised from the bonds are then passed to a non governmental organization that provides services to a target population. The services, by helping the target population, reduce the need for some government expenditures. As a result, the government saves money. It uses the savings to pay the investors interest on the bonds. There is a risk, in that if the government savings are not sufficient, interest may not be paid and indeed, the principle may not be repaid. The financial institution "has skin in the game" by providing some of the capital from its investors. Foundations may help by providing guarantees for the bonds and the financial institution.

If the program works, everyone wins. The target population benefits from the services. The government saves money. The NGO obtains funding to carry out a program that meets its objectives. The foundation does good, but doesn't have to shell out any money. Of course, if the program doesn't work, everyone many lose something (albeit, the government and target population may be no worse off than before).

How about using this mechanism for public health programs? People often could be saved from getting sick with proper health education and preventive services such as immunizations. Lacking these services, the do get sick, lose working days, cost their employers money, and draw on government funding for curative and ameliorative medical services.

So how about enabling NGOs to offer the public health service through "health impact bonds". The government could expect to save money through reductions in Medicare and Medicaid funding, from which they could pay back the investors. Indeed, corporations might be added to the mix if they found that they could reduce health insurance costs and costs of workforce absenteeism. There should be foundations that would be willing to participate (or in a developing nations context, foreign donors). Indeed, financial institutions might be willing to create pilot projects simple as a public service.

Yesterday was Holocaust Remembrance Day. During the Holocaust an estimated six million Jews were killed by the Nazis. No wonder that genocide became universally recognized as a crime against humanity at the time.

Still, it would be wrong to forget that the Nazi extermination plan extended to many other groups that the Nazis considered to be inferior, undesirable or dangerous. According to Wikipedia:

In addition to Jews, the targeted groups included Poles (of whom 2.5 million gentile Poles were killed) and some other Slavic peoples; Soviets (particularly prisoners of war); Romanies (also known as Gypsies) and others who did not belong to the "Aryan race"; the mentally ill, the deaf, the physically disabled and mentally retarded; homosexual and transsexual people; political opponents such as social democrats and socialists; and religious dissidents, i.e. members of Jehovah's Witnesses. Taking into account all of the victims of Nazi persecution, they systematically killed an estimated six million Jews and mass murdered an additional eleven million people during the war. Donald Niewyk suggests that the broadest definition, including Soviet civilian deaths would produce a death toll of 17 million.

The sources cited in this article document an estimated death toll in World War II that range from approximately 60 to 80 million, making it the deadliest war in world history in absolute terms of total dead but not in terms of deaths relative to the world population.

When scholarly sources differ on the number of deaths in a country, a range of war losses is given, in order to inform readers that the death toll is disputed. Civilians killed totaled from 38 to 55 million, including 13 to 20 million from war-related disease and famine. Total military dead: from 22 to 25 million, including deaths in captivity of about 5 million prisoners of war.

That same article estimates that 13 million to 24 million people died in the war in the Soviet Union and that 7 million to 20 million people died in China.

How do we put these figures in perspective? According to the World Health Organization (WHO), 57 million deaths that occurred globally in 2008, roughly comparable to the WWII death toll. According to the following table, the annual toll of preventable deaths in children under five is greater than the estimate of deaths of Jews in the Holocaust. More preschool children die in a couple of years from preventable causes than the total Holocaust mortality. More preschool children die of preventable diseases in a decade than people died in World War II, the worst war in human history.